How to Create a Budget and Stick to It: 2023

Create a Budget. Mastering the art of budgeting: A comprehensive guide to personal finance and financial goals. A budget is an important part of managing your finances. It allows you to track your income and expenses so you can make sure you are spending less than you earn. Sticking to a budget can help you get out of debt, save money for future goals, and live financially stress-free. Here are some tips for creating a budget and following it closely:

Assess Your Current Financial Situation

Before creating a budget, take stock of your finances. Make a list of all your income sources and add them up to get your total monthly income. Then, list all of your expenses and add those up to get your total monthly outgoings. Subtract your expenses from your income to find out if you have a surplus or deficit each month. This gives you a baseline for creating your budget.

Categorize Your Expenses

Go through all of your expenses from the last 3 months. Categorize each expense into one of these common budget categories:

• Housing – rent/mortgage, property taxes, home insurance, etc.
• Transportation – car payment, gas, maintenance, insurance
• Food – groceries, eating out, etc.
• Utilities – electricity, water, cable, phone, heating
• Debt Payments – credit cards, student loans, personal loans
• Lifestyle – entertainment, vacations, hobbies, pets
• Personal – clothing, toiletries, subscriptions
• Healthcare – insurance, medication, doctor visits

This will help you see exactly where your money is going each month. Identify areas where you may be overspending.

Set SMART Financial Goals

Decide what you want to achieve financially. Set Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goals. Examples include:

• Save an emergency fund of $5,000 in 1 year
• Pay off $10,000 in credit card debt in 2 years
• Save $500/month for a down payment on a house in 5 years

Your financial goals will shape your budget priorities. Know exactly what you need to save for short and long-term.

Find Ways to Increase Income

To have more money to put towards your goals, look for ways to increase your income. A few options:

• Ask for a raise at your current job
• Look for a higher paying job in your field
• Start a side hustle doing freelance work, etc.
• Sell unwanted items around your home
• Take on a part-time job on top of your regular job

Even an extra $200-300 per month from a side gig can make a big difference in your budget.

Draft Your Budget

Now it’s time to draft your monthly budget. Use your income, expense categories, financial goals, and money saving tactics to allocate your funds.

Income

• Job: $3000
• Side hustle: $200
• Total income: $3200

Expenses

• Housing: $1000
• Transportation: $200
• Food: $400
• Utilities: $150
• Debt payment: $200
• Lifestyle: $100
• Personal: $100
• Healthcare: $50
• Total expenses: $2200

Remaining (income – expenses): $1000

Try to make your expenses less than your income so you have money left to save and invest. Prioritize essentials like housing, food, and utilities first.

Look for Ways to Trim Expenses

If your expenses are higher than your income, look for budget leaks you can plug to free up more money. Some common areas to cut expenses include:

• Housing: Downsize, get a roommate, negotiate rent
• Food: Meal plan, cut back on takeout, eat out less
• Transportation: Take public transit, carpool, biking, reduce gas and maintenance costs
• Utilities: Conserve energy, negotiate rates, cut the cable cord
• Debt: Consolidate, lower interest rates, pay more than minimums
• Lifestyle: Limit vacations, entertainment, gym memberships, etc.

Even small cuts like bringing lunch to work, limiting coffee shop trips, or canceling unused subscriptions can really add up.

Build an Emergency Fund

A key budgeting priority is to build an emergency fund with 3-6 months of living expenses. This provides a buffer for unexpected expenses like job loss, car repairs, medical bills.

Automate your emergency fund contributions so you max this out first before other savings goals. Keep the money somewhere liquid like a savings account. Don’t touch it except for true emergencies.

Get Support From Loved Ones

Let your family or household members know you are budgeting. Explain your goals and ask them to support efforts like eating in more, limiting entertainment costs, reducing the grocery bill, etc.

Having everyone on board with the budget makes it much easier to implement changes. Keep your loved ones involved in the process.

Avoid Beating Yourself Up

Don’t expect perfection with budgeting, especially when starting out. You may go over budget some months or need to adjust categories. Avoid self-criticism. Instead, focus on the progress you’re making over time.

Budgeting is a process. You’ll get better at estimating expenses and sticking to your goals with practice. Be patient and keep going.

Plan for Non-Monthly Expenses

Your budget should account for non-monthly expenses too like:

• Annual insurance premiums
• Property taxes
• Holiday spending
• Car maintenance
• Vacations
• Gifts

Save up gradually each month for these predictable expenses so they don’t derail your budget. Using a separate savings account or sinking fund can help.

Re-Evaluate and Adjust Your Budget

Review your budget monthly and see if you need to make changes based on your expenses and progress toward savings goals. You may need to adjust categories or account for new expenses.

Revising your budget keeps it realistic and adapted to your changing financial situation over time. Don’t be afraid to shift things around.

Automate Savings and Investments

Once you get in the groove of budgeting and build your emergency fund, prioritize contributing to retirement accounts like 401(k)s and Roth IRAs.

Automate contributions from each paycheck. Pay yourself first before spending on other items. Consistent saving and investing will help grow your net worth.

Use Cash Envelopes (Optional)

For some people, using cash instead of cards helps curb overspending in certain budget categories like groceries, dining out, entertainment, etc.

You can use the “envelope” system – put your allotted amount of cash for each category into labeled envelopes. When it’s gone, your spending stops for that month. This system provides a visual reminder of budget limits.

Budgeting Tips Recap

In summary, these steps can help you create a budget, stick to it, and achieve your financial goals:

• Assess your current finances
• Categorize expenses
• Set SMART financial goals
• Increase income
• Draft your budget
• Use a tracking tool/spreadsheet
• Trim expenses where possible
• Build an emergency fund
• Get support from loved ones
• Avoid self-criticism
• Plan for non-monthly expenses
• Re-evaluate and adjust regularly
• Automate savings
• Use cash envelopes (optional)

The key is finding a budgeting method that works for your personality and situation. Start today – consistency with budgeting pays off over time! Create a Budget.